Turkey in Turmoil: Political Crisis Triggers Lira Crash

Introduction

Turkey is facing a deepening political and financial crisis following the arrest of Istanbul Mayor Ekrem İmamoğlu, a key opposition figure and leading rival to President Recep Tayyip Erdoğan. Charged with corruption and ordered jailed pending trial, İmamoğlu’s detention has ignited mass protests across major cities, escalating into violent clashes and widespread unrest.

The political instability has sent shockwaves through financial markets. On March 19, 2025, the Turkish lira plunged to a record low of 40.88 per U.S. dollar, reflecting collapsing investor confidence and accelerating capital flight. The sudden devaluation has intensified fears of hyperinflation, with import prices surging and the real value of wages and savings evaporating.

Analysts warn the lira could fall further if the crisis continues, triggering a wave of negative economic consequences, including runaway inflation, banking sector instability, and a sharp contraction in consumer demand. The situation presents a critical threat not only to Turkey’s domestic economy but also to international stakeholders with deep exposure to the Turkish market.

Industry Impact

Banking & Finance:
Banks face an immediate spike in non-performing loans as borrowers struggle to repay debt denominated in foreign currencies. Foreign-owned banks with local subsidiaries, such as BBVA and UniCredit, face direct balance sheet exposure. Capital flight and liquidity shortages may trigger further destabilization.

Manufacturing & Automotive:
Imported raw materials and components will become prohibitively expensive, leading to production halts or cost-push inflation. Ford Otosan and other export-driven manufacturers may suffer operational disruptions and margin collapse despite some gains from FX-converted revenue.

Retail & Consumer Goods:
Consumer confidence has plummeted. Hyperinflation is expected to crush domestic consumption. Retailers like CarrefourSA are already struggling with supply chain instability and surging prices.

Energy & Fuel:
Turkey is heavily import-dependent for energy. As the lira weakens, fuel costs will skyrocket, feeding inflation across all sectors. OMV and other international firms may see revenue fall in real terms and demand shrink.

Construction & Infrastructure:
ENKA and other firms with local projects face exploding material costs and financing risks. Investor withdrawals and contract defaults could collapse the construction sector.

Trade Risks

Imports:
A weak lira makes essential imports—fuel, machinery, medicine, food—unaffordable. Supply shortages and black-market activity are likely if current trends persist.

Exports:
While a cheaper lira may boost exports in theory, unrest, instability, and supply chain breakdowns will likely negate this advantage. Exporters also face rising input costs.

Wider Economic Risks

– Hyperinflation and wage-value collapse
– Mass unemployment
– Possible sovereign default on external debt
– Withdrawal of foreign investment
– Social instability and long-term reputational damage

If unaddressed, Turkey’s economic crisis could evolve into a full-scale financial collapse, with significant spillover risk for European institutions and global markets.

Stocks at High Risk

BBVA (Spain) – Ticker: BBVA, Exchange: BME (Bolsa de Madrid):
Owns nearly 86% of Garanti BBVA, one of Turkey’s largest private banks. A lira collapse would severely impact BBVA’s balance sheet and earnings due to devaluation of Turkish assets and surge in NPLs.

UniCredit (Italy) – Ticker: UCG, Exchange: BIT (Borsa Italiana):
Historically held major stake in Yapı Kredi Bank and maintained exposure through lending and operations. Though reduced, residual ties and prior risk concentration still pose material financial exposure to Turkish instability.

Ford Otosan (Turkey-USA) – Ticker: FROTO, Exchange: BIST (Borsa Istanbul):
Joint venture between Ford Motor Company and Koç Holding. Turkey is a key production base for Ford’s commercial vehicles. A currency crash would disrupt operations, raise costs, and impair exports and earnings.

CarrefourSA (Turkey-France) – Ticker: CRFSA, Exchange: BIST (Borsa Istanbul):
Joint venture with Sabancı Holding. Operates over 600 stores across Turkey. Revenue and assets are lira-based, making Carrefour’s earnings vulnerable to hyperinflation and consumption collapse.

OMV (Austria) – Ticker: OMV, Exchange: VIE (Vienna Stock Exchange):
Owns Petrol Ofisi, Turkey’s largest fuel distribution company. High dependency on Turkish market means currency collapse and economic contraction would directly impact OMV’s downstream revenue.

ENKA (Turkey) – Ticker: ENKAI, Exchange: BIST (Borsa Istanbul):
One of Turkey’s largest construction firms with major domestic operations and assets. Severe lira depreciation would inflate costs, reduce demand, and threaten project viability, despite international contracts.